Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Whether farmland that replaces other farmland and crown grazing leases would qualify as replacement property.
Position:
Question of fact but farmland may be considered as replacement for other farmland and crown grazing leases.
Reasons:
Property that is used for the prupose of gaining or producing income in the same or similar business will be considered to be acquired for the same or similar use. Although such property will generally bear the same physical description as the former property, a different type of property may constitute a replacement property where it provides the same use or function as the former property.
J. Gibbons
XXXXXXXXXX 5-972119
Attention: XXXXXXXXXX
December 15, 1997
Dear XXXXXXXXXX:
We are replying to your letter of July 29, 1997, in which you inquire whether farmland that replaces other farmland and crown grazing leases would qualify as replacement property for purposes of section 44 of the Income Tax Act (the "Act").
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R3. The following comments are, therefore, of a general nature only.
Subsection 44(1) of the Act allows taxpayers to defer taxable capital gains in respect of the disposition of a capital property if they acquire a "replacement property." Where the disposition is voluntary, the property disposed of must qualify as a "former business property." The term "former business property" is defined in subsection 248(1) of the Act and generally refers to capital property of the taxpayer that was used by the taxpayer or a related person primarily for the purpose of gaining or producing income from a business and that was real property of the taxpayer or an interest of the taxpayer in real property. Since an interest in real property includes a leasehold interest, both the crown grazing lease and the farmland may qualify as former business properties.
As indicated in paragraph 10 of Interpretation Bulletin IT-259R2, the replacement of two or more capital properties with one property may be accepted. Therefore, farmland that is purchased to replace both farmland and a crown grazing lease may qualify as replacement property if it is in fact a replacement property and it meets the requirements of subsection 44(5) of the Act. However, as indicated in paragraph 4 of IT-259R2, where more than one capital property has been disposed of in circumstances where subsection 44(1) of the Act is applicable, the provisions of that subsection apply to each such property and its replacement property individually.
Whether a particular property has been acquired for the same or similar use, as required by paragraph 44(5)(a) of the Act, is a question of fact. As indicated in paragraph 16 of IT-259R2, property that is used for the purpose of gaining or producing income in the same or similar business will be considered to be acquired for the same or similar use, although such property will generally bear the same physical description as the former property. However, as stated in paragraph 15(b) of IT-259R2, a different type of property could constitute a replacement property where it provides the same use or function as the former property. In our opinion, farmland may be considered to be acquired for the "same or similar use" as a crown grazing lease.
We trust that these comments will be of assistance.
Yours truly,
C. Chouinard
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1997
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1997